Question 1

Interest rate (on any bond) is equal to

Accepted Answer

A)  Sum of risk free (Treasury) interest rate + risk premium. 
B)  Risk free ( Treasury) interest rate - risk premium 
C)  Risk free (Treasury) interest rate. 
D)  None of these. 
A)  Sum of risk free (Treasury) interest rate + risk premium. 
B)  Risk free ( Treasury) interest rate - risk premium 
C)  Risk free (Treasury) interest rate. 
D)  None of these.

Question 2

An increase in the money supply should cause the expenditure schedule to shift upward.

Accepted Answer

A) True 
 B)False

Question 3

The Fed conducts an open-market sale of Treasury bills of $5 million. If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A)  $25 million 
B)  $5 million 
C)  0 
D)  −$5 million 
E)  −$25 million 
A)  $25 million 
B)  $5 million 
C)  0 
D)  −$5 million 
E)  −$25 million

Question 4

Each Federal Reserve district bank is a corporation owned by

Accepted Answer

A)  the member banks in the district. 
B)  the people of the United States. 
C)  the U.S. Department of the Treasury. 
D)  federal securities owners. 
A)  the member banks in the district. 
B)  the people of the United States. 
C)  the U.S. Department of the Treasury. 
D)  federal securities owners.

Question 5

The Fed's principal objective is to

Accepted Answer

A)  make profits to pay into the U.S. Treasury. 
B)  collect tax revenues. 
C)  supervise the business decisions of banks. 
D)  manage the money supply and interest rates. 
A)  make profits to pay into the U.S. Treasury. 
B)  collect tax revenues. 
C)  supervise the business decisions of banks. 
D)  manage the money supply and interest rates.

Question 6

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

Accepted Answer

A)  Decreasing the discount rate 
B)  Suspending trading on the major stock exchanges 
C)  Massive lending to banks 
D)  Open-market purchases of assets other than Treasury bills 
A)  Decreasing the discount rate 
B)  Suspending trading on the major stock exchanges 
C)  Massive lending to banks 
D)  Open-market purchases of assets other than Treasury bills

Question 7

An open-market purchase of T-bonds by the Fed causes the money supply to

Accepted Answer

A)  fall and bond prices to fall. 
B)  rise and bond prices to fall. 
C)  rise and bond prices to rise. 
D)  fall and bond prices to rise. 
A)  fall and bond prices to fall. 
B)  rise and bond prices to fall. 
C)  rise and bond prices to rise. 
D)  fall and bond prices to rise.

Question 8

The discount rate is the rate that the

Accepted Answer

A)  Treasury pays on savings bonds. 
B)  Fed charges member banks. 
C)  Fed charges on government securities. 
D)  Fed charges the Treasury for sales of securities. 
A)  Treasury pays on savings bonds. 
B)  Fed charges member banks. 
C)  Fed charges on government securities. 
D)  Fed charges the Treasury for sales of securities.

Question 9

A decrease in the reserve requirements causes

Accepted Answer

A)  reserves to rise. 
B)  reserves to remain the same. 
C)  the money multiplier to rise. 
D)  the money multiplier to fall. 
A)  reserves to rise. 
B)  reserves to remain the same. 
C)  the money multiplier to rise. 
D)  the money multiplier to fall.

Question 10

If the price level rises, what will happen to the demand for reserves?

Accepted Answer

A)  It will shift outward. 
B)  It will shift inward. 
C)  It will remain unchanged. 
D)  It depends on what happens to interest rates. 
A)  It will shift outward. 
B)  It will shift inward. 
C)  It will remain unchanged. 
D)  It depends on what happens to interest rates.

Question 11

The Federal Reserve System was established by Congress in 1914

Accepted Answer

A)  as a result of a breakthrough in economic theory. 
B)  against significant opposition from the banking sector. 
C)  because of the need for a central bank. 
D)  as the world's first central bank. 
A)  as a result of a breakthrough in economic theory. 
B)  against significant opposition from the banking sector. 
C)  because of the need for a central bank. 
D)  as the world's first central bank.

Question 12

In 2007, as stock prices in general were falling, many investors began switching their funds into purchasing bonds. Surveys suggest that many of these investors did not understand the basic relationship between bond prices and interest rates. Using a numerical example, illustrate how an increase in the demand for bonds would affect the interest rate paid on bonds.

Accepted Answer

If there is an increase in the demand fo

Question 13

Little inflation will occur if the aggregate supply curve is flat.

Accepted Answer

A) True 
 B)False

Question 14

Risk premiums rise sharply in a financial crisis.

Accepted Answer

A) True 
 B)False

Question 15

The demand for reserves increases as the price level rises because

Accepted Answer

A)  people want money to buy goods that will appreciate with inflation. 
B)  people need more money to finance transactions. 
C)  the opportunity cost of holding money increases. 
D)  higher prices reduce the value of dollar assets. 
A)  people want money to buy goods that will appreciate with inflation. 
B)  people need more money to finance transactions. 
C)  the opportunity cost of holding money increases. 
D)  higher prices reduce the value of dollar assets.

Question 16

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

Accepted Answer

A)  also fall. 
B)  rise. 
C)  become more volatile, like stock prices. 
D)  fall but not by as much as stock prices. 
A)  also fall. 
B)  rise. 
C)  become more volatile, like stock prices. 
D)  fall but not by as much as stock prices.

Question 17

If the Federal Open Market Committee decides to expand the money supply, then it will

Accepted Answer

A)  raise the discount rate to member banks. 
B)  issue directions to purchase government securities, thus putting more reserves in member banks. 
C)  issue directions to sell government securities, thus taking reserves from member banks. 
D)  order new Federal Reserve notes delivered to member banks. 
A)  raise the discount rate to member banks. 
B)  issue directions to purchase government securities, thus putting more reserves in member banks. 
C)  issue directions to sell government securities, thus taking reserves from member banks. 
D)  order new Federal Reserve notes delivered to member banks.

Question 18

An increase in the reserve supply

Accepted Answer

A)  will result in inflation if the unemployment rate is high. 
B)  causes interest rates to rise. 
C)  shifts the aggregate demand curve inward. 
D)  will probably cause inflation if the economy is at potential GDP. 
A)  will result in inflation if the unemployment rate is high. 
B)  causes interest rates to rise. 
C)  shifts the aggregate demand curve inward. 
D)  will probably cause inflation if the economy is at potential GDP.

Question 19

The Fed's purchase and sale of government securities is known as

Accepted Answer

A)  margin operations. 
B)  open-market operations. 
C)  bank reserve operations. 
D)  cash management operations. 
A)  margin operations. 
B)  open-market operations. 
C)  bank reserve operations. 
D)  cash management operations.

Question 20

Which of the following policies by the Federal Reserve is likely to increase the money supply?

Accepted Answer

A)  Reducing reserve requirements 
B)  Selling government bonds 
C)  Increasing the discount rate 
D)  Increasing interest on reserves 
A)  Reducing reserve requirements 
B)  Selling government bonds 
C)  Increasing the discount rate 
D)  Increasing interest on reserves

Interest rate (on any bond) is equal to

An increase in the money supply should cause the expenditure schedule to shift upward.

The Fed conducts an open-market sale of Treasury bills of $5 million. If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Each Federal Reserve district bank is a corporation owned by

The Fed's principal objective is to

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

An open-market purchase of T-bonds by the Fed causes the money supply to

The discount rate is the rate that the

A decrease in the reserve requirements causes

If the price level rises, what will happen to the demand for reserves?

The Federal Reserve System was established by Congress in 1914

Little inflation will occur if the aggregate supply curve is flat.

Risk premiums rise sharply in a financial crisis.

The demand for reserves increases as the price level rises because

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

If the Federal Open Market Committee decides to expand the money supply, then it will

An increase in the reserve supply

The Fed's purchase and sale of government securities is known as

Which of the following policies by the Federal Reserve is likely to increase the money supply?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Us Economy

Filters

Exam 29: Monetary Policy: Conventional and Unconventional

Interest rate (on any bond) is equal to

An increase in the money supply should cause the expenditure schedule to shift upward.

The Fed conducts an open-market sale of Treasury bills of $5 million. If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Each Federal Reserve district bank is a corporation owned by

The Fed's principal objective is to

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

An open-market purchase of T-bonds by the Fed causes the money supply to

The discount rate is the rate that the

A decrease in the reserve requirements causes

If the price level rises, what will happen to the demand for reserves?

The Federal Reserve System was established by Congress in 1914

Little inflation will occur if the aggregate supply curve is flat.

Risk premiums rise sharply in a financial crisis.

The demand for reserves increases as the price level rises because

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

If the Federal Open Market Committee decides to expand the money supply, then it will

An increase in the reserve supply

The Fed's purchase and sale of government securities is known as

Which of the following policies by the Federal Reserve is likely to increase the money supply?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Us Economy

Filters